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Friday, 27 August 2010

The conservative UK Sunday Times newspaper recently published a survey of countries with a comfortable western standard of living wealthy tax-exiles could consider escaping to.

This article [only available online for a fee], published on July 11th 2010, described New Zealand’s 2010 budget as “the most radical change to taxation in 25 years.” Compare this to Key’s local attempts to downplay the importance and impact of the 2010 budget.

For a British boss or money speculator making £150,000 a year, Switzerland will take only £40,000 a year, yet “socialist” New Zealand is next cheapest tax shelter with just £50,000 of income taxes.

For this, the wealthy ex-pat gets access to a free world class health system, cheap housing conveniently out of reach for 90% of the population, anti-labour union laws such as the 90-day “fire at will” law that makes the setting up of a tax-loss generating “business” simple and relatively risk-free, and much more.

The cost of these gifts to the transient wealthy is a massive destruction of citizenship rights for Kiwis, with swingeing cuts to ACC entitlements, access to education, health rationing, the protection of union membership, GST rising to 15%, etc. Key’s austerity policies for the poor and working class are costing some their lives and making survival near-impossible for many families.

John Key sold himself to the electorate on the basis of tax cuts, but many didn’t realise that these cuts are biased towards the ultra-rich top 2% of the workforce. Key has transformed New Zealand into a tax-exile destination and articles such as this one in Bloomberg are here to sell the results of these decisions to the world’s rich.

Business news agency Bloomberg takes an outsider’s look at where it thinks New Zealand and John Key are heading.

Prime Minister John Key promoted New Zealand on David Letterman’s Late Show last year. Photo / AP

When he was Merrill Lynch’s global head of foreign exchange in London in 1998, the ever-cheerful John Key was nicknamed “the smiling assassin” after he fired some 50 members of his team.

Today, as Prime Minister of New Zealand, population 4.4 million, he’s using his trademark grin to woo billionaire immigrants, foreign investors and high-end tourists to one of the planet’s most remote developed countries, Bloomberg Markets magazine reports in its October issue.

Key, 49, even took time out from a session of the United Nations General Assembly last year to appear on the Late Show with David Letterman to talk up New Zealand.

He encouraged visitors to take a “convenient” 20-hour, one- or two-stop flight from New York.
“It’s like England without the attitude,” he wisecracked, adding: “Visit in the next 30 days and I will pick you up at the airport.”

Key was joking with Letterman, yet his underlying message was serious. Since he took office in November 2008, the Prime Minister has cut income and corporate taxes, offered scholarships for business executives and taken personal control of the country’s tourism ministry to boost a stuttering $125 billion economy.

New Zealand is struggling to rebound from its worst recession in 30 years. Living standards as measured by per capita gross domestic product are about 15 per cent lower than the average for other OECD countries, according to 2009 estimates based on purchasing-power parity.

One million New Zealanders, including a quarter of university graduates, have moved to work overseas - 260,000 in the past 10 years. Unemployment rose in the second quarter to 6.8 per cent from 6 per cent in the first.

Key says New Zealand needs to lift per capita income by 35 per cent to match that of Australia. In the meantime, he’s trying to replace departing compatriots with wealthy foreigners.

“Attracting high-net-worth individuals is critical in terms of the investments they make and the opportunities they provide for others.” As for his currency background, it comes in most handy in political debates.

“Parliamentary question time is very much like being on a trading floor,” he says. “You live off your wits, and you feed off the environment.”

Key, who leads the centre-right National Party, is pushing pro-business policies. He has trimmed the top income tax rate to 33 per cent from 38 per cent compared with 45 per cent for Australia.

Next year, the corporate tax rate will fall to 28 per cent, two percentage points below Australia’s, from 30 per cent.

He’s trying to win free-trade agreements with India and Russia. He has cut bureaucracy so that Auckland will be run by one local authority instead of eight.

And on August 9, he announced a scholarship under which New Zealand executives can get grants of as much as $110,000 to study at top international business schools and come back to work in the country.

“Look at what he’s done; it’s quite remarkable,” says Jonathan Ling, chief executive officer of Fletcher Building, the country’s biggest publicly traded company, who often recruits executives from the New Zealand diaspora. Since Key took office Fletcher shares have gained 30 per cent to $7.40 on August 23.

Key isn’t starting from scratch in luring affluent visitors. New Zealand has long been home to such investors as billionaire hedge-fund manager Julian Robertson and former Levi Strauss president Tom Tusher.

Robertson developed two of the nation’s most spectacular golf resorts, Kauri Cliffs and The Farm at Cape Kidnappers. In 2002, he bought two wineries, including Dry River, which produces what Bloomberg Markets wine and spirits columnist Elin McCoy describes as one of the New World’s great pinot noirs.

Tusher, 69, owns Blanket Bay, a $750 to $2500-a-night hideaway near Queenstown, and the Amisfield winery.

Neither man will disclose the total value of his investments.

“New Zealand is the most beautiful place on Earth,” says Robertson, 78, who oversees US$23 billion at New York-based Tiger Management LLC and spends three months a year in the country.

“I am a fan of the Prime Minister,” says Robertson, who is due to open his third New Zealand resort, Matakauri Lodge, this Friday. “Now they have a progressive conservative premier, I think it will be much better for them.” Key ousted the Labour Party’s Helen Clark, who had led the country for nine years.

The Prime Minister’s job has been complicated - even for a veteran currency trader - by a New Zealand dollar that has yo-yoed between US39 cents and US82 cents in the past decade.

Hostage to the so-called carry trade, the currency rises when foreign investors pour in money to take advantage of higher-interest-bearing assetsand falls when they pull money out.

Exports and inbound tourism, which make up almost 40 per cent of New Zealand’s GDP, become more expensive with a strong kiwi dollar.

That hurts a country that’s the biggest global exporter of dairy products and lamb and whose visitors account for 20 per cent of foreign-exchange earnings. New Zealand suffers, although less so, when the kiwi dollar hits lows, because imports cost more.

Key says there’s not much he can do to prevent the kiwi’s wild swings, even with his 20 years of foreign-exchange experience.

What he can do is try to negotiate more free-trade agreements to compensate for barriers and subsidies that restrict access for meat and dairy products in New Zealand’s biggest markets.

OECD figures in July showed that in New Zealand, a free-trading nation, 1 per cent of farmers’ incomes comes from subsidies, compared with 61 per cent in Norway, 23 per cent in the European Union and 9 per cent in the US.

“We would be the most vulnerable nation in the world to the vagaries of global markets,” says Andrew Ferrier, chief executive officer of Fonterra.

A rebounding global economy is already helping Key’s prospects. Sales of milk, butter and lamb are increasing as the world emerges from its financial crisis.

New Zealand’s economy is poised to grow 3 per cent this year, according to the International Monetary Fund, compared with a 1.6 per cent contraction in 2009.

On Monday Fonterra reported that its dairy exports rose to a record 2.1 million metric tonnes in the year ended July 31, buoyed by demand from China and other parts of Asia.

The Prime Minister is getting the benefit of the doubt from some rivals because of his personality and inspirational life story, says Mike Moore, a former Labour Party Prime Minister and one-time director-general of the World Trade Organisation.

“We in the Labour Party have a serious problem with John Key,” says Moore, who this month became New Zealand’s ambassador to the US. “He’s a very hard man to hate.”

Key grew up with adversity. His late mother, Ruth Lazar, an Austrian Jew, fled to Britain in 1938. In 1948, she married George Key, an Englishman. The couple emigrated to New Zealand in the 1950s.

His father died when Key was 6. He and his two siblings and Ruth lived in a state house in Christchurch, where the Keys made their way among other struggling families. He never lacked confidence.

“From very early on, I wanted two things,” Key says. “I wanted to go into business and become financially independent.

Secondly, I wanted to go into politics. When I was very young, I wanted to be Prime Minister.”

Key’s path to riches and political power began in 1985 - the year when New Zealand floated the kiwi, which had been pegged to a basket of currencies.

He decided he could make his fortune trading the suddenly fluctuating New Zealand dollar.

He joined Bankers Trust in Auckland in 1988, so eager to succeed that he and his wife, Bronagh, slept in the green glow of a financial terminal beside their bed.

In 1995, Merrill Lynch hired him as a managing director of Asian foreign exchange in Singapore.

Key told Bellotti that Merrill could be a bigger player in currencies. Bellotti, who confirms the story, shared that view.

“They had the clients and the cross-border flow in equities, fixed interest and commodities, but they were not capturing the foreign-exchange part,” Bellotti says.

Bellotti offered Key the job of global head of foreign exchange in London with the proviso that if he didn’t perform he’d be fired in a year.

“If I don’t make it in 11 months, I’ll quit,” Key replied.

Instead, it was Key who ended up sacking other people.

Bellotti says Key expanded the business as they’d planned. Then came the 1997 Asian financial crisis and 1998 Russian debt default.

Key was ordered to cut his 300-strong team by 50 or 60, Bellotti recalls.

“It was a very difficult environment,” Key says. “But for the survival of the business, we did what was necessary.”

Bellotti, now managing director for global markets at Australia New Zealand Banking Group in Sydney, says Key succeeded as a currency trader without taking big risks.

“He was not the king of volatility,” Bellotti says. “He was not the superstar outstanding athlete. He was consistent sometimes to the point of being boring. He was also a great team builder.”

Key also became wealthy. Newspapers have reported that he earned about US$2 million a year in London and his fortune is now US$40 million.

He’ll say only: “It was a substantial amount of money - enough to have choices.”

By then a father of two, Key chose to quit Merrill and take a shot at becoming Prime Minister.

He sought to improve his chances of successfully entering politics with a classy gift - and humour - to win over a local party official who had invited him to a beach barbecue.

Turning up with a $200 bottle of Stonyridge Larose, one of the country’s best red wines, he recommended that his host not serve it with the sausages.

“It was good wine,” Key says, “I hope he still has it in his cellars.”

Key’s political debut wasn’t easy even with such schmoozing. He was selected as a National Party candidate only after a bruising intraparty contest.

He faced New Zealand voters for the first time during the 2002 general election. National suffered its worst defeat ever, winning 27 seats in the 120- member Parliament.

Key, who’d been chosen for one of the safest seats, escaped the rout.

“If I hadn’t challenged in such a strong seat, I would never have made it,” he says.

With so few National members in Parliament, he was promoted to finance spokesman in 2004.

National lost the 2005 election and his colleagues chose him to be Opposition Leader in 2006.

Key has suffered reverses during his two years in office - and digs at his background.

“It is all very well being an international money shuffler, but I thought they were part of the problem, not the solution,” Labour Party Opposition Leader Phil Goff says.

Key’s attempts to raise living standards closer to Australia’s are having the opposite effect, he says, noting that Australia’s economy has been growing faster than New Zealand’s and its jobless rate - 5.3 per cent in July - is lower.

“You have to deliver, not just be a smiling face,” Goff says.

Key backed down in July on a plan to open conservation areas to mining after protesters said the move would jeopardise tourists’ and food shoppers’ image of a green New Zealand.

So far, most voters aren’t holding mistakes against Key. If an election had been held in early August, his National Party would have been re-elected with 54.5 per cent of the vote, a poll conducted for TV3 found.

The poll that really counts will come when Key’s three-year term ends in November 2011 and he seeks re-election. If the world keeps buying New Zealand farm products and if former colleagues on forex desks don’t make the country’s currency too volatile, Key should be smiling for another three years.